This Korea ETF Has Soared, But the Rally May Not Be Over

Key Points

• South Korean equities have surged in 2025, driven largely by semiconductor giants SK hynix and Samsung benefiting from strong AI chip demand.
• The Matthews Korea Active ETF offers actively managed exposure to Korean stocks, allowing flexibility beyond just semiconductor-focused holdings like technology, industrials, and financials.
• MKOR carries a higher 0.79% expense ratio than rival EWY, which has slightly outperformed, but its active approach may better navigate potential volatility.

South Korean equities have had a banner year, highlighted by semiconductor giants like SK hynix Inc. NASDAQ: SKHY, the $1.2-trillion chip giant that has risen more than 10% in the last month alone. The market's performance may lead some investors to wonder whether the opportunity has already come and gone.

The answer may be nuanced—the rally is volatile, but sustained AI-driven chip demand could continue to fuel growth. Combine that with changes to corporate governance and the growing emphasis on returning value to shareholders, and it's possible that Korean stocks may have further room to run. In this case, a prime beneficiary would be an actively managed exchange-traded fund (ETF) ready to be nimble in its efforts to track the Korean market. The Matthews Korea Active ETF NYSEARCA: MKOR could be just the fund to capitalize on these trends.

A Closer Look at the Korean Equities Space for H2

Perhaps the strongest argument that Korean stocks may continue to rise through the end of the year is that the market's semiconductor giants are continuing to benefit from a high-demand cycle. Both SK hynix and Samsung Electronics OTCMKTS: SSNLF are two of the largest and most pivotal suppliers of AI chips and memory products. Chip exports from South Korean semiconductor makers tripled year over year (YOY) for the month of August, reaching some $47 billion.

Supply constraints are very real and remain a concern—while these are detrimental to companies looking to buy AI hardware, they may continue to benefit the manufacturers who can enjoy elevated pricing and margins. The extra influx of cash has helped some Korean firms to be able to return shareholder value with increased dividends or share buyback programs.

Of course, a bet on a broader country-focused ETF like MKOR is not just a play on SK hynix and Samsung. The fund's portfolio is about 46% information technology stocks, leaving significant allocations for industrials, financials, and other sectors as well. While it leans toward the largest mega-cap companies—with more than 50% of the portfolio dedicated to these names—large-caps and even smaller firms represent sizable portions of the basket as well. Investors should keep this in mind and look beyond the AI- and tech-focused headlines for Korean equities when considering MKOR.

MKOR's Big Gains Also Come With Volatility

On an absolute level, MKOR's returns of rougly 80% year to date (YTD) are noteworthy, but a closer look reveals some significant turbulence during that time. As an actively managed fund, MKOR can pivot quickly to choose companies with sustainable growth signals like strong balance sheets, cash flow, and corporate governance. The fund's net asset value has increased alongside its returns, but it's worth noting that the MSCI Korea 25/50 Index has actually done better over the same period.

The massive returns may make investors more willing to tolerate a high expense ratio of 0.79%, which is likely linked to the fund's active management status. Investors may also want to consider lower-cost alternatives in the Korea ETF space that still provide fairly strong representation, even without the degree of flexibility that MKOR enjoys. The iShares MSCI South Korea ETF NYSEARCA: EWY, for example, has returned more than 90% YTD and has a lower cost at an annual fee of 0.59%.

So why choose MKOR over a somewhat cheaper option that has outperformed so far this year? It comes down to that flexibility. Investors anticipating that the bull run for Korean equities may continue will likely want to find a way to engage with the space overall, but if recent volatility continues to be a factor—or if there is a collapse in AI demand, say, that ends up halting progress that the big semiconductor companies have made—MKOR is better positioned to make adjustments on the fly.

On the other hand, buy-and-hold investors may be more willing to tolerate short-term volatility and may prefer the cheaper alternative so long as it still delivers strong overall performance. Still, MKOR's exposure not only to leading AI companies but also to financials, industrials, and other firms that could benefit from governance reforms, improved capital allocation, and other initiatives may be very appealing. Despite an already extraordinary rally behind us and a period of increasing volatility in the space, there may still be room to run for investors willing to tolerate some ups and downs in the market.